For the investor, a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments.
What an investor needs is the ability to correctly evaluate selected businesses. Note that word “selected” : You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important ; knowing its boundaries, however, is vital.
I call investing the greatest business in the world … because you never have to swing. You stand at the plate, the pitcher throws you General Motors at 47$ U.S. Steel at 39$ and nobody calls a strike on you. There’s no penalty except opportunity lost. All day you wait for the pitch you like ; then when the fielders are asleep, you step up and hit it.
I’ll tell you why I like the cigarette business. It costs a penny to make. Sell it for a dollar. It’s addictive. And there’s fantastic brand loyalty.
The trick is, when there is nothing to do, do nothing.
Cryptocurrencies basically have no value. They don’t produce anything.
Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards – so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines : if you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.
I’ve seen more people fail because of liquor and leverage – leverage being borrowed money. You really don’t need leverage in the world much. If you’re smart, you’re going to make a lot of money without borrowing.
The best business returns are usually achieved by companies that are doing something quite similar today to what they were doing five or ten years ago.
The rich are always going to say that, you know, just give us more money and we’ll go out and spend more and then it will trickle down to the rest of you. But that has not worked the last 10 years, and I hope the American public is catching on.